How does raising wages worsen inflation ?
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Money is a token that represents the work you have done.
It doesn’t change how many things are in the shop, or how many people want them.
So if everyone gets more of these tokens, it doesn’t mean they can buy more with them, because they still represent the same amount of work done.
What happens is the price increases because the amount of things to buy in the shop doesn’t change.
Now, when the shopkeeper has to change the price, he has to buy a pen and paper to write the new price on. This costs him money too, so he has to increase the price just a little bit extra on top to cover this.
Product isn’t sold by just manifesting itself and showing up on store shelves. The stores don’t run themselves.
The more you pay somebody to produce, the higher the cost of production.
You pay somebody $8 to pluck apples from a $8 apple tree that yields 8 apples.
Each apple costs $2 to produce. It costs $8 to ship it to the store, where the staff is paid $8 to sell the apples. The cost of producing, shipping, and selling an apple is $4
Now you pay somebody $24 to pluck apples from a $8 apple tree that yields 8 apples. Each apple goes from $2 to produce to $4. It costs $8 to ship to the store, where staff is paid $24 to sell the apples. The cost of producing shipping, and selling an apple has rose from $4 to $8.
If you were making $8 before, you could buy at least 2 apples. Now you can only afford 1.
Employees now have to pay higher to meet a basic standard of living because the cost of production went up, which increases other costs, like the cost to ship the apples.
Now you pay somebody $24 to pluck apples from a $8 apple tree that yields 8 apples. Each apple goes from $2 to produce to $4. It costs $24 to ship to the store, where staff is paid $24 to sell the apples. The cost of producing shipping, and selling an apple has rose from $4 to $10.
If you’re still making $8, you can’t buy an apple. If you get raised to $24, you can get 2 apples and have change to spare.
The math shows that universal wage inflation is a good thing, but it only works if everybody plays the game fairly, which objectively, the world has never universally played fairly.
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